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How to Sell a Stock

Overview

  • Always use limit order for selling, don't ever use market order, except for emergency
  • Use GTT SL for everything, never trade without Stoploss
  • Don't wait till EOD to sell, Sell as soon as stock hit your stoploss, If stock recover well with good volume you can buy it back but if stock didn't recover then you will lost another 2-5% beyound your stoploss which will affect your stats

Initial Stoploss

  • Use Previous Swing Low or day's low depending on setup and market
  • Move to trailing stoploss when 10/21 Day moving average is above your stoploss

Tip

When you take entry in morning make sure that you have 2-3% of profit cushion by end of day. If you don't have profit cushion by end of day or stock have weak closing then it's better to sell full/half with small loss.

Trailing Stoploss

  • When Market is strong
    • Use 10/21 Day MA as stoploss but give 3-4% extra space below MA to deal with shakeouts
    • Some stocks follow 10D MA and some follow 21D MA, so use your personal instinct for this
  • When Market is weak and you're looking to sell
    • Use previous day low as trailing stoploss

Stoploss based on Market Conditions

  • this is like sub category of stoploss
  • Current market aware ness is also taken into consideration for this
  • when market is overbought and you're expecting pull back swich to sell stoploss
  • when market is oversold but there's still lot of volatility then stick with hard stoploss even when you're in good profit
  • Hard Stoploss
    • When i don't want to chock my trade but want to protect my capital from worst case scenarios
    • Hard stoploss should not trigger for daily price volatility
    • normally taken considering price action of day chart
  • Sell Stoploss
    • when i've already decided to take exit due to negative price action or want to protect major chuch of my profit
    • soft stoploss will trigger when there's sudden fall or high volatility
    • normally taken on smaller time frame 5/15 min or on previous day's low

Selling Process depending on different scenarios

When you buy stock breaking out of base

  • VCP, CWH are base breakout patterns
  • Use Swing low as intial SL
  • Trail your stoploss, don't choke your trade

When you buy Uptrending stock

  • bull flag, bull pennant, high tight flag, flat base are continuation pattern
  • For this type of brakout don't wait for stock to break down, Just sell into strength when stock looks extended, or use tight stoploss to lock in profit

When Stock is extended

  • Move your SL to extended day low or 10Day whichever is higher
  • Don't chock your trade, stock can go extended for multiple days
  • you can also book 50% if you're holding very large position to reduce risk.
  • For regular position don't sell half, because it will increase number of stocks in your portfolio

When there's change in circuit limit

  • When there's change in circuit limit and stock is extended then it's good idea to sell and book profit
  • Change in circuit limit mostly put limit on stock upside and people will move to other stock with more upside potential

When Earning Results is due

  • Never hold a stock through earnings if you don't have enough cushion to protect against potential downside.
  • When Market is strong
    • if you have 10%+ profit cushion and related industry group performance is also strong then and then only hold through earning
    • If stocks within the same industry group have generally reacted well to earnings, it may potentially be an indicator that it is safer to hold through earnings.
  • When Market is Weak
    • Always sell 1 day before earning
    • Buy back if results are good and Market response is positive

Warning

earnings events are binary events and there are no guarantees. You must be willing to give up potential gains or face losses.

When Market is weak

  • When index is in short downtrend
  • When market breath is looking very weak
  • then it's good idea to tighen your stoploss and lock in some profit

When you buy stock in morning and have weak closing

  • first check underlying index for that stock, if it's looking good no need to do anything
  • if not you need to limit your losses by either reducing position size or keep tight stoploss for next day. you can set fix 1-2% stoploss or set stoploss at previous 5 min swing low

When Stock squat after big gain

  • Sell half if stock loose most of it's gain, sell full if it goes below day's low

Additional Resources